Culture fit key to M&A success

The Great Little Box Company is in growth mode and mergers and acquisitions are a big part of its strategy. The Vancouver-based manufacturer and distributor of custom and stock corrugated boxes, displays, shipping and moving supplies and protective packaging has acquired six companies in the last seven years.

The criteria for each acquisition is clear: “The new business has to be packaging related because that’s our core business and it has to be something our sales team can sell to our customers because we want to be able to leverage the market we already have,” says James Palmer, vice president of sales and marketing. Also critically important: the ability to integrate new people into the Great Little Box Company culture. “We will not acquire a company that is more than 25% of our size because it makes the cultural piece that much more difficult.”

Getting that cultural piece right is essential to the success of an acquisition, says Stephen Long, professor of organizational behavior at Royal Roads University in Victoria, B.C. “Ultimately, unless you are buying a technology, an acquisition is only as successful as the integration of the acquired company’s people into your corporate culture because it’s the people who will create and deliver the value of the new organization. Until you get everyone on the same page with respect to the values and behaviours you want to see, unlocking that value is not going to happen. Getting buy-in from your existing staff and integrating new talent is critical.”

A lot of mergers go wrong because management doesn’t have the patience to deal with the implications

It is also difficult, particularly if the two corporate cultures are not a natural fit. “A lot of mergers go wrong because management doesn’t have the patience to deal with the implications. The fact is, when analyzing a potential purchase the bean counters don’t typically do a good job of costing out the time and resources that will be required to manage the change,” says Mr. Long. “Those costs will depend on the size and nature of the acquisition. The more complex, the longer it will take.”

In an ideal scenario, the acquiring company understands its own culture and has taken the time to understand that of the company it wants to bring into the fold. In 2010, when RSA Canada, the Canadian arm of UK-based multinational insurer RSA Group , announced the acquisition of GCAN Insurance Company from the Ontario Teachers’ Pension Plan Board, it did just that, says Mark Edgar, senior vice-president of human resources at RSA Canada.

We spent a lot of time making sure we understood who the key players were and trying to understand the culture and how things were done there to make sure we understood the impact of an acquisition and the reaction to it

“What we were acquiring in GCAN was the talent that resided in that organization. It was a capability acquisition. It wasn’t just about growth,” he says. “We spent a lot of time making sure we understood who the key players were and trying to understand the culture and how things were done there to make sure we understood the impact of an acquisition and the reaction to it.”

There were certainly differences between the two cultures. RSA has been around for 302 years. Much of its success is based on having a strong underwriting discipline and a reasonable amount of governance and structure to what it does. GCAN, in comparison, was much more entrepreneurial.

“When we made the decision to buy it, we were buying that capability. It can be positioned as a reverse takeover really because although we are a bigger organization, RSA had a relatively small team in comparison to GCAN in this specialist space, which added another layer of complexity around cultural integration because we wanted to take some of the bits of that culture and maintain it within RSA.”

In fact, GCAN came with a team of 150 people as compared to RSA’s division of 30. Many of the senior leaders in GCAN came into senior positions within the RSA organization. In order to smooth the transition, during the due diligence period of the acquisition, RSA brought in an independent third party to conduct a formal cultural audit of both organizations in order to identify the differences and similarities and where they existed.

Through the process, we convinced ourselves there were more similarities than differences and as a result it meant we weren’t’ as focused on the cultural integration as we should have been

“If I’m honest, I’m not sure I’d do that again. Through the process, we convinced ourselves there were more similarities than differences and as a result it meant we weren’t’ as focused on the cultural integration as we should have been,” says Mr. Edgar. “We used the audit to make us more comfortable.”

That said, since it wanted to maintain GCAN’s entrepreneurialism, RSA positioned its messaging around doing just that — at least initially, during what Mr. Edgar calls the learn phase of the transition where it gained a deeper knowledge of GCAN. “Once we had a better awareness and could see how things were working it was then that we started to think about changes we were going to make around people, benefits packages, the GCAN brand was removed,” he says. “It was a measured, tailored approach.”

“We were proactive in dealing with our existing people and the new people and making sure everyone understood they were all part of the same team. Everyone received the same message about how things would work going forward. Ultimately you want people to feel confident they will be successful in the new organization and that means communicating.”

The best thing management can do is to explain what the impact of the changes will be, which means that before the acquisition, good management will have thought this through and then communicate it as quickly as possible

Mr. Long agrees. Even if there is no news, maintain a level of open communication channels otherwise people fill in the gaps about what could happen on their own. “When an acquisition takes place, the people from the parent company are worried about whether they will lose their jobs or how they will change. The same is true of people from the acquired company. The best thing management can do is to explain what the impact of the changes will be, which means that before the acquisition, good management will have thought this through and then communicate it as quickly as possible.”

That is exactly the approach The Great Little Box Company takes with each acquisition. With the benefit of its focus on acquiring companies in its own backyard, the Metro Vancouver area, the company sets about the task of relationship building. “

We send a team over the day we acquire the business. At that point we’ve already assessed the business for synergies and problems and if there are any staffing changes, we make them right away and all at once,” says Mr. Palmer. “No one is left wondering what will happen. We meet with the entire staff; explain the reason for the acquisition and how excited we are to have them join the company. We start to build relationships with the remaining people right away. We want to know them personally and build some common ground.”